The Northern Trust Company
50 S. LaSalle Street
Chicago, Illinois 60675
1-800-595-9111
The shares offered by this Prospectus represent interests in the Money Market
Fund, the U.S. Government Money Market Fund and the Municipal Money Market Fund
(the "Funds") of Northern Funds, a no-load management investment company
designed to meet the cash management and investment needs of investors.
Each Fund is advised by The Northern Trust Company ("Northern Trust").
Shares are sold and redeemed without any purchase or redemption charge by
Northern Funds, although Northern Trust and other institutions may charge their
customers for their services in connection with investments.
Included in this Prospectus are the following Northern Funds:
Money Market Fund, which seeks to maximize current income to the extent
consistent with the preservation of capital and maintenance of liquidity by
investing exclusively in high-quality money market instruments.
U.S. Government Money Market Fund, which seeks to maximize current income to
the extent consistent with the preservation of capital and maintenance of
liquidity by investing exclusively in obligations of the U.S. Government, its
agencies and instrumentalities and related repurchase agreements.
Municipal Money Market Fund, which seeks, to the extent consistent with the
preservation of capital and prescribed portfolio standards, a high level of
income exempt from regular federal income tax by investing primarily in
municipal instruments.
This Prospectus provides information about the Funds that you should know
before investing. It should be read and retained for future reference. Further
information is included in a statement of additional information dated July 31,
1995 (the "Additional Statement"), which is incorporated by reference herein.
For a free copy, write to Northern Funds' distributor, Sunstone Financial Group,
Inc., at 207 E. Buffalo Street, Suite 400, Milwaukee, Wisconsin 53202 or call 1-
414-271-5885.
SHARES OF NORTHERN FUNDS ARE NOT BANK DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED, ENDORSED OR OTHERWISE SUPPORTED BY, THE NORTHERN TRUST COMPANY, ITS
PARENT COMPANY OR ITS AFFILIATES, AND ARE NOT FEDERALLY INSURED OR GUARANTEED BY
THE U.S. GOVERNMENT, FEDERAL DEPOSIT INSURANCE CORPORATION, FEDERAL RESERVE
BOARD, OR ANY OTHER GOVERNMENTAL AGENCY.
THERE CAN BE NO ASSURANCE THAT THE MONEY MARKET FUND, U.S. GOVERNMENT MONEY
MARKET FUND OR MUNICIPAL MONEY MARKET FUND WILL BE ABLE TO MAINTAIN A STABLE NET
ASSET VALUE OF $1.00 PER SHARE. INVESTMENT IN THE FUNDS INVOLVES INVESTMENT
RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is July 31, 1995 (as revised December 15, 1995).
TABLE OF CONTENTS
Expense Summary
Financial Highlights
Investment Information
Money Market Fund
U.S. Government Money
Market Fund
Municipal Money Market Fund
Other Information
Municipal Money Market Fund -
Additional Risks and Considerations
Regarding California Investments
Additional Investment Information,
Risks and Considerations
Description of Securities and
Investment Techniques
Investment Restrictions
Opening an Account and Purchasing Shares
Purchasing Shares Through Northern
Trust and Other Organizations
Purchasing Shares Directly from
the Funds
Additional Purchase Information
Redeeming and Exchanging Shares
Redeeming and Exchanging
Through Northern Trust
and Other Organizations
Redeeming and Exchanging
Directly from the Funds
Additional Redemption and
Exchange Information
Distributions and Taxes
Distributions
Taxes
Management
Board of Trustees
Investment Adviser, Transfer
Agent and Custodian
Administrator and Distributor
Service Organizations
Expenses
Further Information
Determining Share Price
Advertising Performance
Voting Rights
Shareholder Reports
Retirement Plans
Miscellaneous
EXPENSE SUMMARY
The following table will help you understand the expenses you will bear directly
or indirectly as a shareholder of the Funds. Shareholder Transaction Expenses
are charges you pay when buying or selling Fund shares. Annual Operating
Expenses are paid out of a Fund's assets and include fees for portfolio
management, maintenance of shareholder accounts, general Fund administration,
accounting and other services. Examples based on this information are also
provided.
U.S. Gov't. Municipal
Money Money Money
Market Market Market
------ ------ ------
Shareholder Transaction Expenses
Maximum Sales Charge Imposed
on Purchases None None None
Sales Charge Imposed on
Reinvested Distributions None None None
Deferred Sales Charge Imposed
on Redemptions None None None
Redemption Fees<F1> None None None
Exchange Fees None None None
Annual Operating Expenses
(as a percentage of average
net assets)
Management Fees (after fee
reductions and waivers) 0.40% 0.40% 0.40%
12b-1 Fees 0.00% 0.00% 0.00%
Other Expenses (after fee
reductions and reimbursements) 0.15% 0.15% 0.15%
----- ----- -----
Total Operating Expenses<F2>
After Fee Reductions, Waivers
and Reimbursements 0.55% 0.55% 0.55%
===== ===== =====
Example of Expenses<F3>
Based on the foregoing table,
you would pay the following
expenses on a $1,000
investment, assuming a 5%
annual return and redemption
at the end of each time period:
One Year $ 6 $ 6 $ 6
Three Years $18 $18 $18
Five Years $32 $32 $32
Ten Years $71 $71 $71
<F1>A fee of $15.00 may be applicable for each wire redemption.
<F2>The table and example shown do not reflect any charges that may be imposed
by Northern Trust or other institutions on their customers.
<F3>The example should not be considered a representation of past or future
expenses or rates of return. Actual operating expenses and investment return
may be more or less than those shown.
The above information reflects the expenses the Funds incurred for Northern
Funds' fiscal year ended March 31, 1995 after current voluntary fee reductions.
Without fee reductions, waivers, and reimbursements, "Management Fees" would
be 0.60% for each Fund; "Other Expenses" would be 0.36%, 0.41% and 0.35%,
respectively, for the Money Market, U.S. Government Money Market and Municipal
Money Market Funds; and "Total Operating Expenses" would be 0.96%, 1.01% and
0.95%, respectively. In addition, during the last fiscal year the Funds did not,
and during the current fiscal year the Funds do not expect to, pay any 12b-1
fees (otherwise payable at an annual rate of up to 0.25%) under Northern Funds'
Distribution and Service Plan. For more expense information, see "Management."
FINANCIAL HIGHLIGHTS
The "Financial Highlights" in the following table sets forth selected per
share data and ratios for each of the Funds for the period ended March 31, 1995.
The information has been audited by Northern Funds' independent auditors and
should be read in conjunction with the financial statements and related notes
incorporated by reference into the Additional Statement. Information about the
performance of the Funds is contained in Northern Funds' annual report to
shareholders, which may be obtained without charge by calling the Northern Funds
Center, at 1-800-595-9111 or writing P.O. Box 75986, Chicago, Illinois 60690-
6319.
Period Ending March 31, 1995
U.S.
Government Municipal
Money Money Money
Market Market Market
Fund<F4> Fund<F4> Fund<F4>
-------- -------- --------
Net Asset Value, Beginning
of Period $1.00 $1.00 $1.00
Income from Investment Operations:
Net investment income 0.04 0.04 0.03
----- ----- -----
Less Distributions:
Dividends from net investment
income (0.04) (0.04) (0.03)
------ ------ ------
Net Asset Value, End of Period $1.00 $1.00 $1.00
===== ===== =====
Total Return<F5> 4.69% 4.61% 2.99%
Supplemental Data and Ratios:
Net assets, in thousands, end
of period $894,279 $227,543 $927,747
Ratio of net expenses to
average net assets<F5><F6> 0.45% 0.45% 0.45%
Ratio of net investment income
to average net
assets<F5><F6> 4.94% 4.93% 3.10%
<F4>Commenced investment operations on April 11, 1994.
<F5>Annualized.
<F6>Net of voluntary fee waivers and reimbursements. Without fee waivers and
reimbursements, the ratio of expenses to average net assets would have been
0.96% for the Money Market Fund; 1.01% for the U.S. Government Money Market Fund
and 0.95% for the Municipal Money Market Fund; and the ratio of net investment
income to average net assets would have been 4.43% for the Money Market Fund;
4.37% for the U.S. Government Money Market Fund and 2.60% for the Municipal
Money Market Fund.
INVESTMENT INFORMATION
The investment objectives and policies of each of the Funds are described below.
Additional information regarding the securities, investment techniques and
restrictions of each Fund are described under "Additional Investment
Information, Risks and Considerations."
Money Market Fund. The investment objective of the Money Market Fund is to seek
to maximize current income to the extent consistent with the preservation of
capital and the maintenance of liquidity by investing exclusively in high-
quality money market instruments. In pursuing its investment objective, the
Money Market Fund may invest in a broad range of government, bank and commercial
obligations that are available in the money markets. In particular, the Fund may
invest in:
(A) U.S. dollar-denominated obligations of U.S. banks with total assets in
excess of $1 billion (including obligations of foreign branches of such banks);
(B) U.S. dollar-denominated obligations of foreign commercial banks with total
assets in excess of $5 billion;
(C) high-quality commercial paper and other obligations issued or guaranteed
by U.S. and foreign corporations and other issuers rated (at the time of
purchase) A-2 or higher by Standard & Poor's Ratings Group ("S&P"), Prime-2 or
higher by Moody's Investors Service, Inc. ("Moody's"), Duff 2 or higher by
Duff & Phelps Credit Co. ("Duff"), F-2 or higher by Fitch Investors Service,
Inc. ("Fitch") or TBW-2 or higher by Thomson BankWatch, Inc. ("TBW"), as well
as high-quality corporate bonds rated (at the time of purchase) AA or higher by
S&P, D&P, Fitch or TBW or Aa or higher by Moody's;
(D) unrated notes, paper and other instruments that are of comparable quality
as determined by Northern Trust under guidelines established by Northern Funds'
Board of Trustees and are subsequently ratified by the Board;
(E) asset-backed securities (including interests in pools of assets such as
mortgages, installment purchase obligations and credit card receivables);
(F) securities issued or guaranteed as to principal and interest by the U.S.
Government or by its agencies or instrumentalities and custodial receipts with
respect thereto;
(G) dollar-denominated securities issued or guaranteed by one or more foreign
governments or political subdivisions, agencies or instrumentalities thereof;
(H) repurchase agreements relating to the above instruments; and
(I) securities issued or guaranteed by state or local governmental bodies.
U.S. Government Money Market Fund. The investment objective of the U.S.
Government Money Market Fund is also to seek to maximize current income to the
extent consistent with the preservation of capital and the maintenance of
liquidity by investing exclusively in high-quality money market instruments. The
U.S. Government Money Market Fund seeks to achieve its investment objective by
investing in:
(A) securities issued or guaranteed as to principal and interest by the U.S.
Government or by any of its agencies or instrumentalities (including the
International Bank for Reconstruction and Development);
(B) repurchase agreements relating to the above instruments; and
(C) custodial receipts with respect to securities issued or guaranteed as to
principal and interest by the U.S. Government or by any of its agencies or
instrumentalities.
Municipal Money Market Fund. The investment objective of the Municipal Money
Market Fund is to seek, to the extent consistent with the preservation of
capital and prescribed portfolio standards, a high level of income exempt from
regular federal income tax by investing primarily in municipal instruments. The
Municipal Money Market Fund seeks to achieve its investment objective by
investing exclusively in:
(A) fixed and variable rate notes and similar debt instruments rated MIG-2,
VMIG-2 or Prime-2 or higher by Moody's, SP-2 or A-2 or higher by S&P, AA or
higher by D&P or F-2 or higher by Fitch;
(B) tax-exempt commercial paper and similar debt instruments rated Prime-2 or
higher by Moody's, A-2 or higher by S&P, Duff 2 or higher by D&P or F-2 or
higher by Fitch;
(C) municipal bonds rated Aa or higher by Moody's or AA or higher by S&P, D&P
or Fitch;
(D) unrated notes, paper or other instruments that are of comparable quality
as determined by Northern Trust under guidelines established by Northern Funds'
Board of Trustees; and
(E) municipal bonds and notes which are guaranteed as to principal and
interest by the U.S. Government or an agency or instrumentality thereof or which
otherwise depend directly or indirectly on the credit of the United States.
Other Information. All securities acquired by the Funds will be determined at
the time of purchase by Northern Trust, under guidelines established by Northern
Funds' Board of Trustees, to present minimal credit risks and will be "Eligible
Securities" as defined by the Securities and Exchange Commission (the "SEC").
Eligible Securities are (a) securities that either (i) have short-term debt
ratings at the time of purchase in the two highest rating categories by at least
two unaffiliated nationally recognized statistical rating organizations
("NRSROs") (or one NRSRO if the security is rated by only one NRSRO), or (ii)
are comparable in priority and security with an instrument issued by an issuer
which has such ratings, and (b) securities that are unrated (including
securities of issuers that have long-term but not short-term ratings) but are of
comparable quality as determined in accordance with guidelines approved by the
Board of Trustees.
Each Fund is managed so that the average maturity of all instruments in a Fund
(on a dollar-weighted basis) will not exceed 90 days. In no event will the Funds
purchase any securities which mature more than 397 days from the date of
purchase (except for certain variable and floating rate instruments and
securities collateralizing repurchase agreements). Securities in which the Funds
invest may not earn as high a level of income as longer term or lower quality
securities, which generally have greater market risk and more fluctuation in
market value.
As a matter of fundamental policy, changeable only with the approval of the
holders of a majority of the outstanding shares of the Fund, at least 80% of the
annual gross income of the Municipal Money Market Fund will be derived from debt
instruments, the interest on which is, in the opinion of bond counsel or counsel
for the issuers, exempt from regular income tax ("Municipal Instruments"),
except in extraordinary circumstances such as when Northern Trust believes that
market conditions indicate that the Fund should adopt a temporary defensive
posture by holding uninvested cash or investing in taxable short-term securities
("Taxable Investments").
These opinions may contain various assumptions, qualifications or exceptions
that are reasonably acceptable to Northern Trust. The Municipal Money Market
Fund is not limited in the amount of its assets that may be invested in
"private activity bonds" the interest on which may be treated as an item of
tax preference to shareholders under the federal alternative minimum tax.
Taxable Investments will consist exclusively of instruments that may be
purchased by the Money Market Fund. Under normal market conditions, Taxable
Investments will not exceed 20% of the value of the total assets of the
Municipal Money Market Fund; during temporary defensive periods, however, all or
any portion of the Fund's assets may be invested in such instruments.
Municipal Money Market Fund - Additional Risks and Considerations Regarding
California Investments
The investments of the Municipal Money Market Fund in Municipal Instruments of
California issuers ("California Municipal Instruments") raise additional
considerations. Payment of the interest on and the principal of these
instruments is dependent upon the continuing ability of the issuers to meet
their obligations.
The Fund's investments include obligations of California governmental issuers
which rely in whole or in part, directly or indirectly, on real property taxes
as a source of revenue. "Proposition Thirteen" and similar California
constitutional and statutory amendments and initiatives in recent years have
restricted the ability of California taxing entities to increase real property
tax revenues. Other initiative measures approved by California voters in recent
years, through limiting various other taxes, have resulted in a substantial
reduction in state revenues. Decreased state revenues may result in reductions
in allocations of state revenues to local governments.
Because of the complex nature of the various initiatives mentioned above,
possible ambiguities and inconsistencies in their terms and the scope of various
exemptions and exceptions, as well as the impossibility of predicting the level
of future appropriations for state and local California governmental entities,
it is not possible to determine the impact of these initiatives and related
measures on the ability of California governmental issuers to pay interest or
repay principal on their obligations. There have, however, been certain adverse
developments with respect to California Municipal Instruments over the past
several years.
In addition to the various initiatives discussed above, economic factors such
as the reduction in defense spending, a decline in tourism and high levels of
unemployment have had an adverse impact on the economy of California. These
economic factors have reduced revenues to the state government at a time when
expenses such as education costs, welfare costs and other expenses have been
rising. These economic factors have also adversely impacted the ability of state
and local California governmental entities to repay debt.
In addition to the risk of nonpayment on California Municipal Instruments, if
these obligations decline in quality and are downgraded by the NRSROs, they may
become ineligible for purchase by the Fund under current SEC regulations. Since
there are large numbers of buyers of these instruments that are similarly
restricted, the supply of California Municipal Instruments that are eligible for
purchase by the Fund could become inadequate at certain times.
As of July 31, 1995, approximately 0.68% of the assets of the Municipal
Money Market Fund ($6.95 million) were invested in notes issued by Orange
County, California, which has filed for bankruptcy. Northern Trust, on behalf of
the Fund and certain other accounts, is participating in the bankruptcy
proceedings. The principal amount of these notes was originally payable on July
19, 1995, but the payment date has been extended to June 30, 1996. To date, the
market value of the Municipal Money Market Fund has not been materially affected
by the notes, which are illiquid. There is no assurance, however, that the
principal amount of the notes will in fact be paid on June 30, 1996 or
thereafter. It is also uncertain whether interest payable on the notes is exempt
from regular federal income tax. These and related uncertainties may result in a
loss to the Fund.
A more detailed description of special factors affecting investment in
California Municipal Instruments is set forth in the Additional Statement.
ADDITIONAL INVESTMENT INFORMATION, RISKS AND CONSIDERATIONS
Description of Securities and Investment Techniques
Municipal Instruments. The Municipal Money Market Fund intends to invest
primarily in Municipal Instruments. Municipal Instruments include debt
obligations issued by or on behalf of states, territories and possessions of the
United States and their political subdivisions, agencies, authorities and
instrumentalities. Municipal Instruments include both "general" and
"revenue" obligations. General obligations are secured by the issuer's pledge
of its full faith, credit and taxing power for the payment of principal and
interest. Revenue obligations are payable only from the revenues derived from a
particular facility or class of facilities or, in some cases, from the proceeds
of a special excise tax or other specific revenue source such as lease revenue
payments from the user of the facility being financed. Industrial development
bonds are in most cases revenue securities and are not payable from the
unrestricted revenues of the municipal issuer. Consequently, the credit quality
of an industrial revenue bond is usually directly related to the credit standing
of the private user of the facility involved.
The Fund may also invest in "moral obligation" bonds, which are normally
issued by special purpose public authorities. If the issuer of a moral
obligation bond is unable to meet its debt service obligations from current
revenues, it may draw on a reserve fund (if such a fund has been established),
the restoration of which is a moral commitment but not a legal obligation of the
state or municipality which created the issuer.
Within the principal classifications of Municipal Instruments described above
there are a variety of categories, including municipal bonds, municipal notes,
municipal leases, custodial receipts and participation certificates. Municipal
notes include tax, revenue and bond anticipation notes of short maturity,
generally less than three years, which are issued to obtain temporary funds for
various public purposes. Municipal leases are obligations issued by state and
local governments or authorities to finance the acquisition of equipment and
facilities. Certain municipal lease obligations may include "non-
appropriation" clauses which provide that the municipality has no obligation to
make lease or installment purchase payments in future years unless money is
appropriated for such purpose on a yearly basis. Custodial receipts are
underwritten by securities dealers or banks and evidence ownership of future
interest payments, principal payments or both on certain municipal securities.
Participation certificates are obligations issued by state or local governments
or authorities to finance the acquisition of equipment and facilities. They may
represent participations in a lease, an installment purchase contract, or a
conditional sales contract. Municipal leases (and participations in such leases)
present the risk that a municipality will not appropriate funds for the lease
payments. Northern Trust, under the supervision of Northern Funds' Board of
Trustees, will determine the credit quality of any unrated municipal leases on
an ongoing basis, including an assessment of the likelihood that the leases will
not be cancelled.
The Fund may acquire "stand-by commitments" relating to the Municipal
Instruments held by it. Under a stand-by commitment, a dealer agrees to
purchase, at the Fund's option, specified Municipal Instruments at a specified
price. A stand-by commitment may increase the cost, and thereby reduce the
yield, of the Municipal Instruments to which the commitment relates. The Fund
will acquire stand-by commitments solely to facilitate portfolio liquidity and
does not intend to exercise its rights for trading purposes.
Municipal Instruments purchased by the Fund may be backed by letters of credit
issued by domestic or foreign banks. Foreign letters of credit may involve
certain risks in addition to those of domestic obligations. Foreign banks and
foreign branches of domestic banks may be subject to less stringent reserve
requirements, and to different accounting, auditing and recordkeeping
requirements than domestic banks.
The Fund does not intend to invest 25% or more of the value of its total
assets in industrial development bonds or similar obligations where the non-
governmental entities supplying the revenues from which such bonds or
obligations are to be paid are in the same industry. The Fund may, however,
invest 25% or more of its total assets in Municipal Instruments the interest on
which is paid solely from revenues of similar projects. In addition, although
the Fund does not expect to do so during normal market conditions, it may invest
more than 25% of the value of its total assets in Municipal Instruments whose
issuers are in the same state. When a substantial portion of the Fund's assets
are invested in instruments which are used to finance facilities involving a
particular industry, whose issuers are in the same state or which are otherwise
related, there is a possibility that an economic, business or political
development affecting one instrument would likewise affect the related
instruments.
The Money Market and U.S. Government Money Market Funds may make limited
investments (up to 10% of their net assets) from time to time in Municipal
Instruments or other securities issued by state and local governmental bodies
when Northern Trust believes such an investment strategy is in the best interest
of Northern Funds' shareholders. Dividends paid by Funds other than the
Municipal Money Market Fund on such investments will be taxable to shareholders.
Foreign Securities. The Money Market Fund may invest in dollar-denominated
obligations issued or guaranteed by one or more foreign governments or any of
their political subdivisions, agencies or instrumentalities. These obligations
may be issued by supranational entities, including international organizations
(such as the European Coal and Steel Community) designated or supported by
governmental entities to promote economic reconstruction or development and
international banking institutions and related government agencies.
There are risks and costs involved in investing in foreign securities which
are in addition to the usual risks inherent in domestic investments. Investment
in foreign securities involves higher costs than investment in U.S. securities,
including higher transaction and custody costs as well as the imposition of
additional taxes by foreign governments. Foreign investments also involve risks
associated with less complete financial information about the issuers, less
market liquidity, more market volatility and political instability. Future
political and economic developments, the possible imposition of withholding
taxes on dividend income, the possible seizure or nationalization of foreign
holdings, the possible establishment of exchange controls, or the adoption of
other governmental restrictions might adversely affect an investment in foreign
securities. Additionally, foreign banks and foreign branches of domestic banks
are subject to less stringent reserve requirements, and to different accounting,
auditing and recordkeeping requirements.
United States Government Obligations. To the extent consistent with their
respective investment objectives, each Fund may invest in a variety of U.S.
Treasury obligations consisting of bills, notes and bonds, which principally
differ only in their interest rates, maturities and issuance dates. The Funds
may also invest in other securities issued or guaranteed by the U.S. Government,
its agencies or instrumentalities. Obligations of certain agencies and
instrumentalities, such as the Government National Mortgage Association
("GNMA"), are supported by the full faith and credit of the U.S. Treasury;
others, such as those of the Export-Import Bank of the United States, are
supported by the right of the issuer to borrow from the Treasury; others, such
as those of the Federal National Mortgage Association ("FNMA"), are supported
by the discretionary authority of the U.S. Government to purchase the agency's
obligations; still others, such as those of the Student Loan Marketing
Association ("SLMA"), are supported only by the credit of the
instrumentalities. No assurance can be given that the U.S. Government would
provide financial support to its agencies or instrumentalities if it is not
obligated to do so by law. Obligations of the International Bank for
Reconstruction and Development (also known as the World Bank) are supported by
subscribed, but unpaid, commitments of its member countries. There is no
assurance that these commitments will be undertaken or complied with in the
future.
Securities guaranteed as to principal and interest by the U.S. Government, its
agencies or instrumentalities are deemed to include (a) securities for which the
payment of principal and interest is backed by an irrevocable letter of credit
issued by the U.S. Government or an agency or instrumentality thereof, and (b)
participations in loans made to foreign governments or their agencies that are
so guaranteed. The secondary market for certain of these participations is
limited. Such participations will therefore be regarded as illiquid. No
assurance can be given that the U.S. Government would provide financial support
to its agencies or instrumentalities if it is not obliged to do so by law.
Stripped Obligations. To the extent consistent with their respective investment
objectives, the Funds may purchase Treasury receipts and other "stripped"
securities that evidence ownership in either the future interest payments or the
future principal payments on U.S. Government and other obligations. These
participations, which may be issued by the U.S. Government (or a U.S. Government
agency or instrumentality) or by private issuers such as banks and other
institutions, are issued at a discount to their "face value," and may include
stripped mortgage-backed securities ("SMBS"). Stripped securities,
particularly SMBS, may exhibit greater price volatility than ordinary debt
securities because of the manner in which their principal and interest are
returned to investors.
SMBS are usually structured with two or more classes that receive different
proportions of the interest and principal distributions from a pool of mortgage-
backed obligations. A common type of SMBS will have one class receiving all of
the interest, while the other class receives all of the principal. However, in
some cases, one class will receive some of the interest and most of the
principal while the other class will receive most of the interest and the
remainder of the principal. If the underlying obligations experience greater
than anticipated prepayments of principal, a Fund may fail to fully recoup its
initial investment. The market value of the class consisting entirely of
principal payments can be extremely volatile in response to changes in interest
rates. The yields on a class of SMBS that receives all or most of the interest
are generally higher than prevailing market yields on other mortgage-backed
obligations because their cash flow patterns are also volatile and there is a
greater risk that the initial investment will not be fully recouped.
SMBS issued by the U.S. Government (or a U.S. Government agency or
instrumentality) may be considered liquid under guidelines established by
Northern Funds' Board of Trustees if they can be disposed of promptly in the
ordinary course of business at a value reasonably close to that used in the
calculation of a Fund's per share net asset value.
Custodial Receipts for Treasury Securities. To the extent consistent with their
respective investment objectives, the Funds may purchase participations in
trusts that hold U.S. Treasury securities (such as TIGRs and CATs) or other
obligations where the trust participations evidence ownership in either the
future interest payments or the future principal payments on the obligations.
These participations are normally issued at a discount to their "face value,"
and can exhibit greater price volatility than ordinary debt securities because
of the way in which their principal and interest are returned to investors.
Investments by a Fund (other than the U.S. Government Money Market Fund) in such
participations will not exceed 5% of the value of that Fund's total assets.
Investments by the U.S. Government Money Market Fund in such participations will
not exceed 35% of the value of that Fund's total assets.
Asset-Backed Securities. The U.S. Government Money Market Fund may purchase
securities that are secured or backed by mortgages and that are issued by the
U.S. Government, its agencies or instrumentalities. The other Funds may purchase
asset-backed securities that are secured or backed by mortgages or other assets
(e.g., automobile loans and credit card receivables) and are issued by the U.S.
Government, GNMA, FNMA, Federal Home Loan Mortgage Corporation, and private
issuers such as commercial banks, financial companies, finance subsidiaries of
industrial companies, savings and loan associations, mortgage banks and
investment banks. The Funds will not purchase non-mortgage asset-backed
securities that are not rated investment grade by S&P, Duff, Fitch or Moody's.
Non-mortgage asset-backed securities invoke certain risks that are not
presented by mortgage-backed securities. Primarily, these securities do not have
the benefit of the same security interest in the underlying collateral. Credit
card receivables are generally unsecured and the debtors are entitled to the
protection of a number of state and federal consumer credit laws, many of which
have given debtors the right to set off certain amounts owed on the credit
cards, thereby reducing the balance due. Most issuers of automobile receivables
permit the servicers to retain possession of the underlying obligations. If the
servicer were to sell these obligations to another party, there is a risk that
the purchaser would acquire an interest superior to that of the holders of the
related automobile receivables. In addition, because of the large number of
vehicles involved in a typical issuance and technical requirements under state
laws, the trustee for the holders of the automobile receivables may not have an
effective security interest in all of the obligations backing such receivables.
Therefore, there is a possibility that recoveries on repossessed collateral may
not, in some cases, be able to support payments on these securities.
The Funds may acquire several types of mortgage-backed securities, including
guaranteed mortgage pass-through certificates, which provide the holder with a
pro rata interest in the underlying mortgages, and collateralized mortgage
obligations ("CMOs"), which provide the holder with a specified interest in
the cash flow of a pool of underlying mortgages or other mortgage-backed
securities. Issuers of CMOs ordinarily elect to be taxed as pass-through
entities known as real estate mortgage investment conduits ("REMICs"). CMOs
are issued in multiple classes, each with a specified fixed or floating interest
rate and a final distribution date. The relative payment rights of the various
CMO classes may be structured in a variety of ways. The Funds will not purchase
"residual" CMO interests, which normally exhibit greater price volatility.
The yield characteristics of asset-backed securities differ from traditional
debt securities. A major difference is that the principal amount of the
obligations may be prepaid at any time because the underlying assets (i.e.,
loans) generally may be prepaid at any time. As a result, if an asset-backed
security is purchased at a premium, a prepayment rate that is faster than
expected will reduce yield to maturity, while a prepayment rate that is slower
than expected will have the opposite effect of increasing yield to maturity.
Conversely, if an asset-backed security is purchased at a discount, faster than
expected prepayments will increase, while slower than expected prepayments will
decrease, yield to maturity. In calculating the average weighted maturity of a
Fund, the maturity of asset-backed securities will be based on estimates of
average life.
Prepayments on asset-backed securities generally increase with falling
interest rates and decrease with rising interest rates; furthermore, prepayment
rates are influenced by a variety of economic and social factors. In general,
the collateral supporting non-mortgage asset-backed securities is of shorter
maturity than mortgage loans and is less likely to experience substantial
prepayments. Like other fixed income securities, when interest rates rise the
value of an asset-backed security generally will decline; however, when interest
rates decline, the value of an asset-backed security with prepayment features
may not increase as much as that of other fixed income securities.
Corporate and Bank Obligations. To the extent consistent with their respective
investment objectives, the Funds may invest in debt obligations of domestic or
foreign corporations and banks, and may acquire commercial obligations issued by
Canadian corporations and Canadian counterparts of U.S. corporations, as well as
Europaper, which is U.S. dollar-denominated commercial paper of a foreign
issuer. Bank obligations may include certificates of deposit, notes, bankers'
acceptances and fixed time deposits. These obligations may be general
obligations of the parent bank or may be limited to the issuing branch or
subsidiary by the terms of specific obligation or by government regulation. For
purposes of determining the permissibility of an investment in bank obligations,
the total assets of a bank are determined on the basis of the bank's most recent
annual financial statements.
Guaranteed Investment Contracts. The Money Market Fund may make limited
investments in guaranteed investment contracts ("GICs") issued by highly rated
U.S. insurance companies. Under these contracts, a Fund makes cash contributions
to a deposit fund of the insurance company's general account. The insurance
company then credits to the Fund, on a monthly basis, interest which is based on
an index (such as the Salomon Brothers CD Index), but is guaranteed not to be
less than a certain minimum rate. The Fund does not expect to invest more than
5% of its net assets in GICs at any time during the current fiscal year.
Variable and Floating Rate Instruments. In accordance with their respective
investment objectives, the Funds may purchase rated and unrated variable and
floating rate instruments. These instruments may include variable amount master
demand notes that permit the indebtedness to vary in addition to providing for
periodic adjustments in the interest rate. A Fund may purchase variable and
floating rate instruments with stated maturities in excess of its maturity
limitations provided that the Fund may demand payment of the principal of the
instrument at least once within the applicable maturity limitation on not more
than thirty days' notice (unless the instrument is issued or guaranteed by the
U.S. Government or an agency or instrumentality thereof). Unrated instruments
will be determined by Northern Trust to be of comparable quality at the time of
purchase to rated instruments purchasable by the Funds.
Repurchase Agreements. Each Fund may agree to purchase portfolio securities from
financial institutions subject to the seller's agreement to repurchase them at a
mutually agreed upon date and price ("repurchase agreements"). Although the
securities subject to a repurchase agreement may bear maturities exceeding one
year, settlement for the repurchase agreement will never be more than one year
after a Fund's acquisition of the securities and normally will be within a
shorter period of time. Securities subject to repurchase agreements are held
either by Northern Funds' custodian or subcustodian (if any), or in the Federal
Reserve/Treasury Book-Entry System. The seller under a repurchase agreement will
be required to maintain the value of the securities subject to the agreement in
an amount exceeding the repurchase price (including accrued interest). Default
by the seller would, however, expose a Fund to possible loss because of adverse
market action or delay in connection with the disposition of the underlying
obligations.
Reverse Repurchase Agreements and Other Borrowings. Each Fund is authorized to
make limited borrowings as described below under "Investment Restrictions." If
the securities held by a Fund should decline in value while borrowings are
outstanding, the market value of the Fund's portfolio will decline in value by
proportionately more than the decline in value it would otherwise suffer.
Borrowings may be made through reverse repurchase agreements under which a Fund
sells portfolio securities to financial institutions such as banks and
broker/dealers and agrees to repurchase them at a particular date and price. The
Funds may use the proceeds of reverse repurchase agreements to purchase other
securities either maturing, or under an agreement to resell, on a date
simultaneous with or prior to the expiration of the reverse repurchase
agreement. The Funds (other than the Municipal Money Market Fund) may utilize
reverse repurchase agreements when it is anticipated that the interest income to
be earned from the investment of the proceeds of the transaction is greater than
the interest expense of the transaction. This use of reverse repurchase
agreements may be regarded as leveraging and, therefore, speculative. Reverse
repurchase agreements involve the risks that the interest income earned in the
investment of the proceeds will be less than the interest expense, that the
market value of the securities sold by a Fund may decline below the price of the
securities the Fund is obligated to repurchase and that the securities may not
be returned to the Fund. During the time a reverse repurchase agreement is
outstanding, a Fund will maintain a segregated account with Northern Funds'
custodian containing cash, U.S. Government or other appropriate liquid high-
grade debt securities having a value at least equal to the repurchase price. A
Fund's reverse repurchase agreements, together with any other borrowings, will
not exceed, in the aggregate, 33 1/3% of the value of its total assets. In
addition, whenever borrowings exceed 5% of the Fund's total assets, the Fund
will not make any investments.
Securities Lending. Each Fund may seek additional income from time to time by
lending securities on a short-term basis to banks, brokers and dealers. The
securities lending agreements will require that the loans be secured by
collateral in cash, U.S. Government securities or irrevocable bank letters of
credit maintained on a current basis equal in value to at least the market value
of the loaned securities. A Fund may not make such loans in excess of 33 1/3% of
the value of its total assets. Securities loans involve risks of delay in
receiving additional collateral or in recovering the loaned securities, or
possibly loss of rights in the collateral if the borrower of the securities
becomes insolvent.
Forward Commitments, When-Issued Securities and Delayed-Delivery Transactions.
Each Fund may purchase or sell securities on a when-issued or delayed-delivery
basis and make contracts to purchase or sell securities for a fixed price at a
future date beyond customary settlement time. Securities purchased or sold on a
when-issued, delayed-delivery or forward commitment basis involve a risk of loss
if the value of the security to be purchased declines, or the value of the
security to be sold increases, before the settlement date. Although a Fund will
generally purchase securities with the intention of acquiring them, a Fund may
dispose of securities purchased on a when-issued, delayed-delivery or a forward
commitment basis before settlement when deemed appropriate by Northern Trust.
Investment Companies. In connection with the management of its daily cash
positions, each Fund may invest in securities issued by other investment
companies which invest in short-term, high-quality debt securities and determine
their net asset value per share based on the amortized cost or penny-rounding
method of valuation. As a shareholder of another investment company, a Fund will
bear, along with other shareholders, its pro rata portion of the other
investment company's expenses including advisory fees. These expenses would be
in addition to the advisory fees and other expenses the Fund bears directly in
connection with its own operations. Investments in other investment companies
will be subject to the limits imposed by the Investment Company Act of 1940 (the
"1940 Act").
Illiquid Securities. Each Fund may invest up to 10% of the value of its net
assets in illiquid securities. Illiquid securities generally include repurchase
agreements and time deposits with notice/termination dates in excess of seven
days, SMBS issued by private issuers, interest rate and currency swaps, unlisted
over-the-counter options, GICs and certain securities which are subject to
trading restrictions because they are not registered under the Securities Act of
1933 (the "1933 Act").
If otherwise consistent with its investment objective and policies, each Fund
may purchase commercial paper issued pursuant to Section 4(2) of the 1933 Act
and securities that are not registered under the 1933 Act but can be sold to
"qualified institutional buyers" in accordance with Rule 144A under the 1933
Act. These securities will not be considered illiquid so long as Northern Trust
determines, under guidelines approved by Northern Funds' Board of Trustees, that
an adequate trading market exists. This practice could increase the level of
illiquidity during any period that qualified institutional buyers become
uninterested in purchasing these securities. The ability to sell to qualified
institutional buyers under Rule 144A is a relatively recent development, and it
is not possible to predict how this market will ultimately develop.
Portfolio Transactions. Northern Trust's Advisory Agreement provides that in
selecting brokers or dealers to place orders for transactions (a) involving
common and preferred stocks, Northern Trust shall use its best judgment to
obtain the best overall terms available and (b) involving bonds and other fixed
income obligations, Northern Trust shall attempt to obtain best net price and
execution. In assessing the best overall terms available for any transaction,
Northern Trust is to consider all factors it deems relevant, including the
breadth of the market in the security, the price of the security, the financial
condition and execution capability of the broker or dealer, and the
reasonableness of the commission, if any, both for the specific transaction and
on a continuing basis. In evaluating the best overall terms available and in
selecting the broker or dealer to execute a particular transaction, Northern
Trust may consider the brokerage and research services provided to the Funds
and/or other accounts over which Northern Trust or an affiliate of Northern
Trust exercises investment discretion. These brokerage and research services may
include industry and company analyses, portfolio services, quantitative data,
market information systems and economic and political consulting and analytical
services.
Miscellaneous. After its purchase by a Fund, a rated security may cease to be
rated or its rating may be reduced below the minimum rating required for
purchase by the Fund. Northern Trust will consider such an event in determining
whether the Fund should continue to hold the security. Northern Trust expects to
sell promptly any securities that are below "high quality" where it has
determined that such sale is in the best interest of the Fund. Because Northern
Trust and the Board of Trustees of Northern Funds have determined that their
current sale would not be in the Fund's best interests, as of the date of this
Prospectus, the Municipal Money Market Fund held notes issued by Orange County,
California that were below "high quality." See "Investment Information -
Municipal Money Market Fund - Additional Risks and Considerations Regarding
California Investments."
For a description of applicable securities ratings, see Appendix A to the
Additional Statement.
The Funds do not intend to purchase certificates of deposit of Northern Trust
or its affiliate banks, commercial paper issued by Northern Trust's parent
holding company or other securities issued or guaranteed by Northern Trust, its
parent holding company or their subsidiaries or affiliates.
Investment Restrictions
A Fund's investment objective may be changed by Northern Funds' Board of
Trustees without shareholder approval. Shareholders will, however, be notified
of any changes. Any such change may result in a Fund having an investment
objective different from the objective which the shareholder considered
appropriate at the time of investment in the Fund. No assurance can be provided
that a Fund will achieve its investment objective.
Each Fund has also adopted certain fundamental investment restrictions that
may be changed only with the approval of a majority of a Fund's outstanding
shares. The following description summarizes several of the Funds' fundamental
restrictions, which are set forth in full in the Additional Statement.
No Fund may:
1. purchase securities (except U.S. Government securities and repurchase
agreements collateralized by such securities) if more than 5% of its total
assets at the time of purchase will be invested in the securities of any one
issuer, except that up to 25% of a Fund's total assets may be invested without
regard to this 5% limitation;
2. subject to the foregoing 25% exception, purchase more than 10% of the
outstanding voting securities of any issuer;
3. invest 25% or more of its total assets at the time of purchase in
securities of issuers whose principal business activities are in the same
industry; and
4. borrow money except in amounts up to 33 1/3% of the value of its total
assets at the time of borrowing.
In addition, in accordance with current SEC regulations, the Money Market and
U.S. Government Money Market Funds intend, as a non-fundamental policy, to limit
investments in the securities of any single issuer (other than securities issued
or guaranteed by the U.S. Government, its agencies or instrumentalities and
repurchase agreements collateralized by such securities) to not more than 5% of
the value of their respective total assets at the time of purchase, except for
25% of the value of their total assets which may be invested in any one issuer
for a period of up to three Business Days. The Money Market and U.S. Government
Money Market Funds will also limit their investments in Eligible Securities that
are not in the highest rating category as determined by two NRSROs (or one NRSRO
if the security is rated by only one NRSRO) or, if unrated, are not of
comparable quality, to 5% of their total assets, with investments in any one
such issuer being limited to no more than 1% of its total assets or $1 million,
whichever is greater, measured at the time of purchase.
OPENING AN ACCOUNT AND PURCHASING SHARES
An investment account may be opened and shares purchased directly from Northern
Funds by following the instructions below under "Purchasing Shares Directly
from the Funds." If you maintain certain accounts at Northern Trust or another
organization (such as a bank or broker/dealer) that has entered into a
distribution or servicing agreement with Northern Funds, you may purchase shares
through that organization in accordance with its procedures. See "Purchasing
Shares Through Northern Trust and Other Organizations" below for more details.
If you have any questions or need any assistance in opening an investment
account or purchasing shares, call 1-800-595-9111.
Purchasing Shares Through Northern Trust and Other Organizations
Northern Trust customers may purchase shares through their qualified accounts
and should consult with their account officer for additional information and
instructions. Customers of other organizations (together with Northern Trust,
"Service Organizations") that have entered into agreements with Northern
Funds, should contact their account officer or other designated representative
for appropriate purchase instructions. Northern Trust or another Service
Organization may impose particular customer account requirements in connection
with investments in the Funds, such as minimum account size or minimum account
thresholds above which excess cash balances may be invested in Fund shares. To
determine whether you may purchase shares through another organization, contact
that organization directly or call 1-800-595-9111. Purchases (and redemptions)
placed through Northern Trust or another Service Organization are processed only
on days that both Northern Funds and the particular organization are open for
business. Service Organizations may make alternative arrangements for their
clients in Northern Funds related to fund options and shareholder services which
are listed as available in this Prospectus. For more information on which Funds
and shareholder services are available through your program, contact your
organization directly.
Depending on the terms of the particular account used to purchase Fund shares,
Northern Trust or other organizations may impose charges against the account.
These charges could include asset allocation fees, account maintenance fees,
sweep fees, compensating balance requirements or other charges based upon
account transactions, assets or income. The charges will reduce the net return
on an investment in a Fund. For further discussion of Service Organizations and
the procedures for purchasing (and redeeming) shares through them, see
"Management - Service Organizations."
Purchasing Shares Directly
from the Funds
For your convenience, there are a number of ways to invest directly with
Northern Funds. When establishing an investment account directly with Northern
Funds, the minimum initial investment in a Fund is $2,500 ($500 for an IRA; $250
for a spousal IRA; $250 under the Automatic Investment Plan; and $500 for
employees of Northern Trust and its affiliates). The minimum subsequent
investment is $50 (except for reinvestments of distributions for which there is
no minimum). The Funds reserve the right to waive these minimums.
By Mail. You may purchase shares by mail by sending a Purchase Application
together with a check or money order payable to Northern Funds by addressing
your envelope to Northern Funds at P.O. Box 75986, Chicago, Illinois 60690-6319.
Additional requirements may be imposed. If using overnight delivery use the
following address: 801 South Canal Street, Chicago, Illinois 60607, Attn:
Northern Funds. Your check must be drawn on a bank located in the U.S. and must
be payable in U.S. dollars. When making subsequent investments, enclose your
check with the return remittance portion of the confirmation of your previous
investment, or indicate on your check or a separate piece of paper your name,
address and account number.
A $20 fee will be charged by the Transfer Agent if any check used for
investment does not clear. In addition, you will be responsible for any loss
suffered by a Fund. If you purchase shares by check and subsequently request the
redemption of those shares, Northern Funds may delay the payment of redemption
proceeds until the Transfer Agent is satisfied that the check has cleared, which
may take up to 15 days from the purchase date. If you anticipate redemptions
soon after purchase, you may wish to wire funds to avoid delays. Northern Funds
will not accept payment in cash or third party checks for the purchase of
shares.
By Wire. You may make initial or subsequent investments in shares of the Funds
by wiring federal funds. If you are opening an account with a wire purchase, you
must call 1-800-595-9111 for instructions prior to wiring funds. You must
promptly complete a Purchase Application and forward it to the Transfer Agent by
addressing your envelope to Northern Funds at P.O. Box 75986, Chicago, Illinois
60690-6319. Additional requirements may be imposed. Redemptions will not be paid
until your completed application has been received by the Transfer Agent. If you
wish to add to an existing account by wire purchase, you may wire federal funds
to:
The Northern Trust Company
Chicago, Illinois
ABA Routing No. 0710-00152
(Reference 10 Digit Fund Account Number)
(Reference Shareholder's Name)
Direct Deposit. You may purchase additional shares through the Direct Payroll
Deposit Plan offered by Northern Funds. Through this plan, periodic investments
(minimum $50) are made automatically from your payroll check into your existing
Fund account. In order to participate in the plan, your employer must have
direct deposit capabilities through the Automated Clearing House ("ACH")
available to its employees. The plan may be used for other direct deposits, such
as social security checks, military allotments, and annuity payments. Further
details about this service may be obtained from the Transfer Agent by calling
1-800-595-9111. Northern Funds reserves the right, at any time and without prior
notice, to limit or terminate the Direct Payroll Deposit privilege or its use in
any manner by any person.
Automatic Investment. Northern Funds offers an Automatic Investment Plan that
allows you to automatically purchase shares on a regular, monthly basis ($250
initial minimum, $50 monthly minimum additions). Under this plan the Transfer
Agent originates an ACH request to your financial institution which forwards
funds periodically to the Transfer Agent to purchase shares. The plan can be
established with any financial institution that participates in the ACH funds
transfer system. No service fee is currently charged by Northern Funds for
participation in the plan. You may establish the plan by completing the
appropriate section on the Purchase Application when opening an account. You may
also establish the plan after an account is opened by completing an Automatic
Investment Plan Application which may be obtained by calling 1-800-595-9111. If
an investor discontinues participation in the plan, the Funds reserve the right
to redeem the investor's account involuntarily, upon 60 days' written notice, if
the account's net asset value is $1,000 or less.
Directed Reinvestments. In addition to having your income dividends and/or
capital gains distributions reinvested in shares of the Fund from which such
distributions are paid, you may elect the directed reinvestment option and have
dividends and capital gains distributions automatically invested in another
Northern Fund. In addition, systematic withdrawals from one account and
reinvestments in another account may be established. See "Redeeming and
Exchanging Directly from the Funds - Systematic Withdrawals." Reinvestments can
only be directed to an existing Northern Funds account (which must meet the
minimum investment requirement). Directed reinvestments may be used to invest
funds from a regular account to another regular account, from a qualified plan
account to another qualified plan account, or from a qualified plan account to a
regular account. Directed reinvestments from a qualified plan account to a
regular account may have adverse tax consequences including imposition of a
penalty tax and therefore you should consult your own tax adviser before
commencing these transactions.
By Exchange. You may open a new account or add to an existing account by
exchanging shares of one Fund for shares of any other Fund offered by Northern
Funds. See "Redeeming and Exchanging Shares" for details.
Additional Purchase Information
Effective Time and Price of Purchases. A purchase order for Fund shares
received by the Transfer Agent by 1:00 p.m. (Chicago Time) on a Business Day
will be executed that day, provided immediately available funds have been
received by the Transfer Agent by that time. If your purchase order or
immediately available funds are not received by the Transfer Agent by 1:00 p.m.
(Chicago Time), then your purchase order will be executed on the next Business
Day following the Business Day on which your order and immediately available
funds are received by the Transfer Agent. Purchase orders that are accompanied
by payment in any form other than immediately available funds will be executed
on the next Business Day after the Business Day on which both the order and
payment in proper form are received by the Transfer Agent. Certain Service
Organizations which use a centralized purchase method for fund shares may have
an earlier cutoff time for same-day purchase orders than stated above to
facilitate purchase orders by bulk wire. For more information on transaction
cutoffs, contact your organization directly.
Miscellaneous Purchase Information. You will be responsible for all losses and
expenses of the Funds as a result of a check that does not clear or an ACH
transfer that is rejected. Northern Funds may decline to accept a purchase order
when, in the judgment of Northern Funds or its investment adviser, it would not
be in the best interest of existing shareholders to accept the order. Federal
regulations require that you provide a social security number or other certified
taxpayer identification number upon opening or reopening an account. Purchase
Applications without such a number or an indication that a number has been
applied for will not be accepted. If a number has been applied for, the number
must be provided and certified within sixty days of the date of the Purchase
Application. Payment for shares of a Fund may, in the discretion of Northern
Trust, be made in the form of securities that are permissible investments for
the respective Fund. For further information, see the Additional Statement.
Additions or changes to any information in your account registration (for
example, a change in registration from a joint account to an individual account)
may be made by submitting a written request to the Transfer Agent accompanied by
a signature guarantee by a financial institution that is a participant in the
Stock Transfer Agency Medallion Program ("STAMP") or such other means or
evidence of authority as may be acceptable to the Transfer Agent. Additional
requirements may be imposed. In the interests of economy and convenience,
certificates representing shares of the Funds are not issued. Northern Funds may
reproduce this Prospectus in an electronic format which may be available on the
Internet. If you have received this Prospectus in its electronic format you, or
your representative, may contact the Transfer Agent for a free paper copy of
this Prospectus by writing to the Northern Funds Center at P.O. Box 75986,
Chicago, Illinois 60690-6319 or by calling 1-800-595-9111.
REDEEMING AND
EXCHANGING SHARES
You can arrange to withdraw your investment in the Funds by selling some or all
of your shares. This process is known as "redeeming" your shares. The
procedures for redeeming shares differ depending on whether you purchase your
shares directly from Northern Funds or through Northern Trust or another Service
Organization. If you purchase your shares through an account at Northern Trust
or another Service Organization, you will redeem them in accordance with the
instructions pertaining to that account.
Redeeming and Exchanging Through Northern Trust and Other Organizations
If you purchase your shares through an account at Northern Trust or another
Service Organization, you will redeem or exchange them in accordance with the
instructions pertaining to that account. If you are listed on the books of
Northern Funds as the shareholder of record, you may also redeem and exchange
your shares using any of the methods described above under "Redeeming and
Exchanging Directly from the Funds." Questions regarding these redemptions or
exchanges should be directed to your account representative at Northern Trust
or, if you purchased shares through a Service Organization, contact that
organization directly for redemption instructions. Some organizations will hold
shares of Northern Funds in nominee or street name as agent for their clients.
In such instances, Northern Funds will have no information with respect to, or
control over individual shareholder accounts. Although Northern Funds imposes no
charges when you redeem, when shares are purchased through Northern Trust or
another Service Organization a fee may be charged by those organizations for
providing services in connection with your account.
Redeeming and Exchanging Directly from the Funds
When you purchase your shares directly from Northern Funds, you may redeem or
exchange shares by the methods described below. You may also use any of these
methods if you purchase your shares through an account at Northern Trust or
another Service Organization and you appear on Northern Funds' records as the
registered holder. You may call 1-800-595-9111 if you have any questions
regarding redemptions or exchanges.
Northern Funds imposes no charges when you redeem or exchange shares.
Remember, however, when shares are purchased through Northern Trust or another
Service Organization, a fee may be charged by those institutions for providing
services in connection with your investment.
By Mail. You may redeem shares in any number or dollar amount by sending a
written request to Northern Funds, P.O. Box 75986, Chicago, Illinois 60690-6319.
The redemption request must state the number of shares or the dollar amount to
be redeemed and identify the Fund account number. If the redemption proceeds are
to be sent elsewhere than the address of record, each request must be
accompanied by a signature guarantee by a financial institution that
participates in STAMP or such other means or evidence of authority as may be
acceptable to the Transfer Agent. In addition, written requests for redemptions
exceeding $50,000 must be accompanied by a signature guarantee by a financial
institution that participates in STAMP or such other means or evidence of
authority as may be acceptable to the Transfer Agent. Additional requirements
may be imposed. A signature notarized by a notary public is unacceptable.
Northern Funds reserves the right to require signature guarantees in other
circumstances based on the amount of the redemption request or other factors,
and may impose additional requirements.
By Wire. If you authorize wire redemptions on your Purchase Application, shares
can be redeemed and the proceeds sent by federal wire transfer to a previously
designated account. You will be charged $15 for each wire redemption unless the
designated account is maintained at Northern Trust or an affiliated bank. The
minimum amount that may be redeemed by this method is $250. Northern Funds
reserves the right to change this minimum or to terminate the wire redemption
privilege at any time without notice. To change bank instructions, a written
request accompanied by a signature guarantee by a financial institution that
participates in STAMP, or such other means or evidence of authority acceptable
to the Transfer Agent, must be sent to Northern Funds, P.O. Box 75986, Chicago,
Illinois 60690-6319. Additional requirements may be imposed.
By Check. You may also redeem shares of the Funds by redemption check in amounts
of $250 or more once the checkwriting privilege has been established. When the
check is presented to the Transfer Agent for payment, the Transfer Agent, as
your agent, will cause the particular Fund involved to redeem a sufficient
number of your shares to cover the amount of the check. Dividends are earned
until the check clears the Transfer Agent. You can establish the checkwriting
privilege by checking the appropriate box on the Purchase Application, or if
your Fund account is already opened, by completing the appropriate form which
may be obtained by calling the Transfer Agent at 1-800-595-9111. When
establishing checkwriting for an account that is already opened, the form must
be signed by each person whose name appears on the account accompanied by
signature guarantees by a financial institution that participates in STAMP or
such other means or evidence of authority as may be acceptable to the Transfer
Agent. Additional requirements may be imposed.
You may place stop payment requests on checks by calling the Transfer Agent at
1-800-595-9111. A $20 fee will be charged for each stop payment request. If
there are insufficient shares in your account to cover the amount of your
redemption by check, the check will be returned, marked "insufficient funds,"
and a fee of $20 will be charged to the account. You may not use checks to close
an account or redeem shares purchased within the past fifteen days. Checks you
write will not be returned to you, although copies are available upon request.
Northern Funds reserves the right, at any time without prior notice, to suspend,
limit or terminate the checkwriting privilege or its use in any manner by any
person.
Systematic Withdrawals. Northern Funds offers a Systematic Withdrawal Plan. If
you own shares of a Fund with a minimum value of $10,000, you may elect to have
a fixed sum redeemed at regular intervals ($250 minimum amount per withdrawal)
and distributed in cash or reinvested in one or more of the other Funds offered
by Northern Funds. See "Purchasing Shares Directly from the Funds - Directed
Reinvestments." An application form and additional information may be obtained
from the Transfer Agent by calling 1-800-595-9111.
Exchange Privilege. Northern Funds offers an exchange privilege that permits you
to exchange shares of one Fund or portfolio for shares of another Fund or
portfolio offered by Northern Funds. To establish the exchange privilege, you
must check the appropriate box on the Purchase Application or, if your Fund
account is already opened, you may send a written request to the Transfer Agent,
and must establish or maintain accounts with an identical title in each Fund
involved in an exchange transaction. In addition, the shares being exchanged
must have a value of at least $1,000 ($2,500 if a new account is being
established by the exchange).
Since an excessive number of exchanges may be disadvantageous to Northern
Funds, Northern Funds reserves the right, at any time without prior notice, to
suspend, limit or terminate the exchange privilege of any shareholder who makes
more than eight exchanges of shares in a year and/or two exchanges of shares in
a calendar quarter. A shareholder may continue making exchanges until notified
that the exchange privilege has been suspended, limited or terminated. Questions
regarding the exchange privilege may be directed to 1-800-595-9111 or to your
account officer at your Service Organization. Exchanges will be processed only
when the shares being acquired can be legally sold in the state of the
investor's residence.
Exchanges may have tax consequences. No exchange fee is currently imposed by
Northern Funds on exchanges. Northern Funds reserves, however, the right to
impose a charge in the future.
Telephone Privilege. This privilege permits you to redeem or exchange shares by
telephone. To establish the telephone privilege, you must check the appropriate
box on the Purchase Application, or if your Fund account is already opened, you
may send a written request to the Transfer Agent. The request must be signed by
each owner of the account and accompanied by signature guarantees as provided
below or such other means or evidence of authority as may be acceptable to the
Transfer Agent. Once you have established the telephone privilege, you may use
the telephone privilege by calling the Transfer Agent at 1-800-595-9111.
The Transfer Agent has adopted procedures in an effort to establish reasonable
safeguards against fraudulent telephone transactions. The proceeds for
redemption orders will be sent by check, by wire transfer or by transfer to an
account maintained at Northern Trust or an affiliated bank. All checks will be
made payable to the shareholder of record and mailed only to the shareholder's
address of record. The address of record for redemption checks may be changed
only by a written request accompanied by signature guarantees by a financial
institution that participates in STAMP or such other means or evidence of
authority as may be acceptable to the Transfer Agent and sent to Northern Funds,
P.O. Box 75986, Chicago, Illinois 60690-6319. Additionally, the Transfer Agent
utilizes recorded lines for telephone transactions and will request a form of
personal identification if such identification has been furnished to the
Transfer Agent. Neither Northern Funds nor its Transfer Agent will be
responsible for the authenticity of instructions received by telephone that are
reasonably believed to be genuine. To the extent that Northern Funds fails to
use reasonable procedures to verify the genuineness of telephone instructions,
it or its service providers may be liable for instructions that prove to be
fraudulent or unauthorized. In all other cases, you will bear the risk of loss.
Northern Funds reserves the right to refuse a telephone redemption if it
believes it is advisable to do so. Procedures for redeeming shares by telephone
may be modified or terminated by Northern Funds at any time without notice.
During periods of substantial economic or market change, telephone redemptions
may be difficult to place. If you are unable to contact the Transfer Agent by
telephone, shares may also be redeemed by mail as described above under the
discussion of redemptions by mail.
Additional Redemption and
Exchange Information
Effective Time and Price of Redemptions and Exchanges. Redemption orders for
shares of a Fund are processed at the net asset value next determined at 1:00
p.m. (Chicago Time) after receipt in good order by the Transfer Agent by 1:00
p.m. (Chicago Time) on a Business Day. Good order means that the request must
include the following information: the account number and Fund name; the amount
of the transaction (as specified in dollars or number of shares); the signatures
of all account owners exactly as they are registered on the account (except for
telephone and wire redemptions); required signature guarantees (if applicable);
and other supporting legal documents that might be required in the case of
estates, corporations, trusts and certain other accounts. Call 1-800-595-9111
for the additional documentation that may be required of these entities.
Exchange orders are likewise processed at the net asset value per share next
determined after receipt in good order by the Transfer Agent on a Business Day.
Payment of Redemption Proceeds. If received by the Transfer Agent by 1:00 p.m.
(Chicago Time) on a Business Day, a redemption request normally will result in
proceeds being sent on the next Business Day, unless payment in immediately
available funds on the same Business Day is specifically requested. Proceeds for
redemption orders received on a non-Business Day will normally be sent on the
second Business Day after receipt in good order. However, if any portion of the
shares to be redeemed represents an investment made by check, Northern Funds may
delay the payment of the redemption proceeds until the Transfer Agent is
reasonably satisfied that the check has been collected, which could take up to
fifteen days from the purchase date. Northern Funds reserves the right to defer
crediting, sending or wiring redemption proceeds for up to seven days after
receiving the redemption order if, in its judgment, an earlier payment could
adversely affect a Fund.
Miscellaneous Redemption Information. All redemption proceeds will be sent by
check unless Northern Trust or the Transfer Agent is directed otherwise. The ACH
system may be utilized for payment of redemption proceeds. Redemptions may not
be processed if a shareholder has failed to submit a completed and signed
Purchase Application. Northern Funds may require any information reasonably
necessary to ensure that a redemption has been duly authorized.
To relieve Northern Funds of the cost of maintaining uneconomical accounts,
Northern Funds reserves the right to redeem the shares held in any account if at
the time of any redemption of shares in the account, the net asset value of the
remaining shares in the account falls below $1,000. Before such involuntary
redemption would occur, you would be given at least 60 days' written notice and,
during that period, you could make an additional investment to restore the
account to at least the minimum amount, in which case there would be no such
redemption. Involuntary redemptions will not be made because the value of shares
in an account falls below the minimum amount solely because of a decline in a
Fund's net asset value. Any involuntary redemption would be at net asset value.
Northern Funds also reserves the right to redeem shares involuntarily if it is
otherwise appropriate to do so under the 1940 Act (see "Amortized Cost
Valuation" in the Additional Statement).
DISTRIBUTIONS AND TAXES
Distributions
Each Fund's net investment income is declared as a dividend on each Business Day
on the shares that are outstanding at 1:00 p.m. (Chicago Time) on the
declaration date. Net investment income includes interest accrued on the Fund's
assets less the Fund's estimated expenses. Dividends from net investment income
are paid monthly. Net realized short-term capital gains, after reduction for
capital loss carry-forwards, if any, of a Fund may be distributed from time to
time during Northern Funds' fiscal year (but not less frequently than annually).
The Funds do not expect to realize net long-term capital gains.
Dividends and capital gain distributions, if any, are automatically reinvested
(without any sales charge or portfolio transaction fee) in additional shares of
the same Fund at their net asset value determined on the payment date. You may,
however, notify the Transfer Agent in writing that you elect to have dividends
and/or capital gain distributions paid in cash or reinvested in shares of
another Fund offered by Northern Funds at their net asset value determined on
the payment date (provided you maintain an account in such Fund). This election
will become effective for distributions paid two days after its receipt by the
Transfer Agent.
Taxes
As with any investment, you should consider the tax implications of an
investment in Northern Funds. The following is only a short summary of the
important tax considerations generally affecting the Funds and their
shareholders. You should consult your tax adviser with specific reference to
your own tax situation. Northern Funds will send written notices to shareholders
annually regarding the tax status of distributions made by the Funds. The Funds
will determine annually the percentages of their respective net investment
income which are exempt from tax, which constitute an item of tax preference for
purposes of the federal alternative minimum tax, and which are fully taxable and
will apply these percentages uniformly to all dividends declared from net
investment income during that year. These percentages may differ significantly
from the actual percentages for any particular day.
Federal Taxes. Each Fund intends to qualify as a "regulated investment
company" under the Internal Revenue Code (the "Code"), meaning that to the
extent a Fund's earnings are distributed to shareholders as required by the
Code, the Fund itself is not required to pay federal income taxes.
To qualify, a Fund will pay as dividends at least 90% of its investment
company taxable income and at least 90% of its net tax-exempt income (if any)
each year. Investment company taxable income includes taxable interest,
dividends and short-term capital gains less expenses. Dividends based on either
investment company taxable income (which includes income resulting from
investments in options and futures contracts) or the excess of net short-term
capital gain over net long-term capital loss are treated as ordinary income in
determining gross income for tax purposes, whether or not the dividends are
received in cash or additional shares. (Federal income taxes for distributions
to an IRA or other qualified retirement account are deferred under the Code.)
Dividends paid by the Municipal Money Market Fund (but not the other Funds)
that are derived from interest on Municipal Instruments ("exempt-interest
dividends") may be treated by you as excludable from your gross income (unless
because of your particular situation exclusion would be disallowed). You should
note that income that is not subject to federal income taxes may nevertheless
have to be considered along with other adjusted gross income in determining
whether any Social Security payments received by you are subject to federal
income taxes. You should also note that a portion of the exempt-interest
dividends paid by the Municipal Money Market Fund generally will be an item of
tax preference for both corporate and individual taxpayers in determining
federal alternative minimum and environmental tax liability. (Corporate
taxpayers will be required to take into account all exempt-interest dividends
from the Municipal Money Market Fund in determining certain adjustments for
alternative minimum tax and environmental tax purposes.)
Any distribution based on the excess of long-term capital gain over net short-
term capital loss will be taxable as a long-term capital gain, no matter how
long you hold Fund shares.
Any dividends declared in October, November or December and payable to
shareholders during those months will be deemed to have been paid by a Fund and
received by shareholders on December 31, so long as the dividends are actually
paid, as expected, in January of the following year.
Northern Funds will be required in certain cases to withhold and remit to the
U.S. Treasury 31% of the dividends and distributions paid to any investor (i)
who has provided either an incorrect Social Security Number or Taxpayer
Identification Number or no number at all, (ii) who is subject to withholding
by the Internal Revenue Service for failure to properly include on his return
payments of interest or dividends, or (iii) who has failed to certify to
Northern Funds, when required to do so, that he is not subject to backup
withholding or that he is an "exempt recipient."
State and Local Taxes Generally. Because your state and local taxes may be
different than the federal taxes described above, you should see your tax
adviser. In particular, dividends may be taxable under state or local law as
dividend income even though all or part of those dividends come from interest on
obligations that, if held by you directly, would be free of such income taxes.
You may find it particularly useful to compare the tax-free yields of the
Municipal Money Market Fund to the equivalent yields from taxable investments.
For an investor in a low tax bracket, it may not be helpful to invest in a tax-
exempt investment if a higher after-tax yield can be achieved from a taxable
instrument.
The following table illustrates the difference between hypothetical tax-free
yields and tax-equivalent yields for different tax brackets. You should be
aware, however, that tax brackets can change over time and that your tax adviser
should be consulted for specific yield calculations.
<TABLE>
<CAPTION>
Federal
Marginal Tax-Exempt Yields
Taxable Income Tax Rate 4.00% 4.50% 5.00% 5.50% 6.00% 6.50%
------------------------------------------- -------- ------------------------------------------------
Single Return Joint Return Equivalent Taxable Yields
-------------------- -------------------- -----------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0 - $ 22,750 $ 0 - $ 38,000 15% 4.71% 5.29% 5.88% 6.47% 7.06% 7.65%
$ 22,751 - $ 55,100 $ 38,001 - $ 91,850 28% 5.56% 6.25% 6.94% 7.64% 8.33% 9.03%
$ 55,101 - $115,000 $ 91,851 - $140,000 31% 5.80% 6.52% 7.25% 7.97% 8.70% 9.42%
$115,001 - $250,000 $140,001 - $250,000 36% 6.25% 7.03% 7.81% 8.59% 9.38% 10.16%
Over $250,000 Over $250,000 39.6% 6.62% 7.45% 8.28% 9.11% 9.93% 10.76%
The tax-exempt yields used here are hypothetical and no assurance can be made that the Fund will attain any particular yield. The
Fund's yield fluctuates as market conditions change. The tax brackets and related yield calculations are based on the 1994 federal
marginal tax rates indicated in the table. The table does not reflect the phase out of personal exemptions and itemized deductions
which will apply to certain higher income taxpayers.
</TABLE>
MANAGEMENT
Board of Trustees
The business and affairs of Northern Funds are managed under the direction of
its Board of Trustees. The Additional Statement contains the name of each
Trustee and other background information.
Investment Adviser, Transfer Agent and Custodian
Northern Trust, with offices at 50 S. LaSalle Street, Chicago, Illinois 60675,
serves as Northern Funds' investment adviser, transfer agent and custodian. As
transfer agent, Northern Trust provides various administrative servicing
functions, and any shareholder inquiries may be directed to it.
Northern Trust, a member of the Federal Reserve System, is an Illinois state-
chartered commercial bank and the principal subsidiary of Northern Trust
Corporation, a bank holding company. Northern Trust was formed in 1889 with
capitalization of $1 million. As of June 30, 1995, Northern Trust Corporation
and its subsidiaries had approximately $19.3 billion in assets, $11.2 billion in
deposits and employed over 6,500 persons.
Northern Trust and its affiliates administered in various capacities
(including as master trustee, investment manager or custodian) almost $550
billion in assets as of June 30, 1995 including over $91 billion for which
Northern Trust had investment management responsibility.
Subject to the general supervision of Northern Funds' Board of Trustees,
Northern Trust is responsible for making investment decisions for the Funds and
placing purchase and sale orders for portfolio securities. Northern Trust is
also responsible for monitoring and preserving the records required to be
maintained under the regulations of the SEC (with certain exceptions unrelated
to its activities for Northern Funds). In making investment recommendations for
the Funds, investment advisory personnel must not inquire or take into
consideration whether issuers of securities proposed for purchase or sale for
the Funds' accounts are customers of Northern Trust's commercial banking
department. These requirements are designed to prevent investment advisory
personnel for the Funds from knowing which companies have commercial business
with Northern Trust and from purchasing securities where they know the proceeds
will be used to repay loans to the bank. As compensation for its advisory
services and its assumption of related expenses, Northern Trust is entitled to a
fee, computed daily and payable monthly, at an annual rate of .60% of the
average daily net assets of each of the Funds.
Northern Trust also receives compensation as Northern Funds' custodian and
transfer agent. The fees payable by the Funds for these services are described
in the Additional Statement.
Administrator and Distributor
Sunstone Financial Group, Inc. ("Sunstone"), 207 E. Buffalo Street, Suite 400,
Milwaukee, Wisconsin 53202, acts as administrator and distributor for Northern
Funds. Shares of the Funds are sold by Sunstone, as distributor, on a continuous
basis. As compensation for its administrative services (which include clerical,
compliance, regulatory and other services) and the assumption of related
expenses, Sunstone is entitled to a fee, computed daily and payable monthly, at
an annual rate of .15% of Northern Funds' average net assets. No compensation is
payable by Northern Funds to Sunstone for its distribution services.
Service Organizations
Northern Funds may enter into agreements with Service Organizations such as
banks, corporations, brokers, dealers and other financial organizations,
including Northern Trust, concerning the provision of support and/or
distribution services to their customers who own Fund shares. These services,
which are described more fully in the Additional Statement, may include support
services such as assisting investors in processing administrative purchase,
exchange and redemption requests; processing dividend and distribution payments
from the Funds; providing information to customers showing their positions in
the Funds; and providing subaccounting with respect to Fund shares beneficially
owned by customers or the information necessary for subaccounting. In addition,
Service Organizations may provide assistance, such as the forwarding of sales
literature and advertising to their customers, in connection with the
distribution of Fund shares. For their services, Service Organizations may
receive fees from a Fund at annual rates of up to .25% of the average daily net
asset value of the shares covered by their agreements.
Service Organizations may charge their customers fees for providing
administrative services in connection with investments in a Fund. Under the
terms of their agreements with Northern Funds, Service Organizations are
required to provide a schedule of these fees to their customers. In addition,
investors should contact their Service Organization with respect to the
availability of shareholder services and the particular Service Organization's
procedures for purchasing and redeeming shares. It is the responsibility of
Service Organizations to transmit purchase and redemption orders and record
those orders on a timely basis in accordance with their agreements with their
customers.
Conflict-of-interest restrictions may apply to the receipt of compensation
paid by Northern Funds in connection with the investment of fiduciary funds in
Fund shares. Organizations, including banks regulated by the Comptroller of the
Currency, Federal Reserve Board and state banking commissions, and investment
advisers and other money managers subject to the jurisdiction of the SEC, the
Department of Labor or state securities commissions, are urged to consult their
legal counsel before entering into agreements with Northern Funds.
The Glass-Steagall Act and other applicable laws, among other things, prohibit
banks from engaging in the business of underwriting securities. Accordingly,
banks will be engaged under agreements with Northern Funds only to perform the
administrative and investor servicing functions described above, and will
represent that the services provided by them under the agreements will not be
primarily intended to result in the sale of Fund shares.
Agreements that contemplate the provision of distribution services by Service
Organizations are governed by a Distribution and Service Plan (the "Plan")
that has been adopted by Northern Funds pursuant to Rule 12b-1 under the 1940
Act. No payments are made to Sunstone under the Plan. However, payments to
Service Organizations, including Northern Trust, under the Plan are not tied
directly to their own out-of-pocket expenses and therefore may be used as they
elect (for example, to defray their overhead expenses), and may exceed their
direct and indirect costs.
Expenses
Except as set forth above and in the Additional Statement, each Fund is
responsible for the payment of its expenses. These expenses include, without
limitation, the fees and expenses payable to Northern Trust and Sunstone,
brokerage fees and commissions, fees for the registration or qualification of
Fund shares under federal or state securities laws, expenses of the organization
of Northern Funds, taxes, interest, costs of liability insurance, fidelity
bonds, indemnification or contribution, any costs, expenses or losses arising
out of any liability of, or claim for damages or other relief asserted against
Northern Funds for violation of any law, legal, tax and auditing fees and
expenses, expenses of preparing and printing prospectuses, statements of
additional information, proxy materials, reports and notices and the printing
and distributing of the same to the Funds' shareholders and regulatory
authorities, compensation and expenses of its Trustees, payments to Service
Organizations, fees of industry organizations such as the Investment Company
Institute, and miscellaneous and extraordinary expenses incurred by Northern
Funds.
Northern Trust and Sunstone intend to voluntarily reimburse a portion of the
Funds' expenses and/or reduce their advisory and administrative fees from the
Funds during the current fiscal year. The result of these reimbursements and fee
reductions will be to increase the performance of the Funds during the periods
for which the reductions and reimbursements are made.
FURTHER INFORMATION
Determining Share Price
Net asset value per share for purposes of purchases and redemptions is
calculated by Northern Trust on each Business Day as of 1:00 p.m. (Chicago Time)
for each Fund. Net asset value is calculated by dividing the value of all
securities and other assets belonging to a Fund, less the liabilities charged to
a Fund, by the number of the Fund's outstanding shares.
In seeking to maintain a net asset value of $1.00 per share with respect to
each Fund for purposes of purchases and redemptions, Northern Funds values the
portfolio securities held by each of the Funds pursuant to the amortized cost
method of valuation described in the Additional Statement under
"Amortized Cost Valuation."
Advertising Performance
The performance of each Fund may be compared to those of other mutual funds with
similar investment objectives and to other relevant indices or to rankings
prepared by independent services or other financial or industry publications
that monitor the performance of mutual funds. For example, the performance of a
Fund may be compared to data prepared by Lipper Analytical Services, Inc.
Performance data as reported in national financial publications such as Money
Magazine, Forbes, Barron's, The Wall Street Journal and The New York Times, or
in publications of a local or regional nature, may also be used in comparing the
performance of a Fund.
The yield of a Fund is computed based on the Fund's net income during a
specified seven-day period. The net investment income is then "annualized."
That is, the amount of net investment income generated by the investment during
the period is assumed to be generated each week over a 52-week period and is
shown as a percentage of the investment. The "effective" yield of a Fund is
calculated similarly but, when annualized, the net investment income generated
by the investment is assumed to be reinvested. The "effective" yield will be
slightly higher than the "yield" because of the compounding effect of this
assumed reinvestment.
The tax-equivalent yield for the Municipal Money Market Fund shows the amount
of taxable yield needed to produce an after-tax equivalent of a tax-free yield,
and is calculated by increasing the yield (as calculated above) by the amount
necessary to reflect the payment of federal and/or state income taxes at a
stated rate. The tax-equivalent yield for the Municipal Money Market will always
be higher than the Fund's yield.
Performance is based on historical earnings and is not intended to indicate
future performance. The investment return and principal value of an investment
in a Fund will fluctuate so that shares, when redeemed, may be worth more or
less than their original cost. Performance data may not provide a basis for
comparison with bank deposits and other investments which provide a fixed yield
for a stated period of time. Changes in the net asset value should be considered
in ascertaining the total return to shareholders for a given period. Total
return data should also be considered in light of the risks associated with a
Fund's composition, quality, operating expenses and market conditions. Any fees
charged by Northern Trust or a Service Organization directly to its customers in
connection with investments in the Funds will not be included in Northern Funds'
calculations of performance data.
Voting Rights
Northern Funds was formed as a Massachusetts Business Trust on October 12, 1993
under an Agreement and Declaration of Trust (the "Trust Agreement"). The Trust
Agreement permits the Board of Trustees to issue an unlimited number of shares
of beneficial interest of one or more separate series representing interests in
different investment portfolios. Northern Funds currently offers seventeen
separate Funds, three of which are described in this Prospectus.
Shareholders are entitled to one vote for each full share held and
proportionate fractional votes for fractional shares held. Each series entitled
to vote on a matter will vote in the aggregate and not by series, except as
required by law or when the matter to be voted on affects only the interests of
shareholders of a particular series. The Additional Statement gives examples of
situations where the law requires voting by series. Voting rights are not
cumulative and, accordingly, the holders of more than 50% of the aggregate
shares of Northern Funds may elect all of the Trustees.
Northern Funds does not presently intend to hold annual meetings of
shareholders except as required by the 1940 Act or other applicable law.
Pursuant to the Trust Agreement, the Trustees will promptly call a meeting of
shareholders to vote upon the removal of any Trustee when so requested in
writing by the record holders of 10% or more of the outstanding shares. To the
extent required by law, Northern Funds will assist in shareholder communications
in connection with the meeting.
As of July 15, 1995, Northern Trust possessed sole or shared voting or
investment power for its customer accounts with respect to more than 50% of the
outstanding shares of Northern Funds.
Shareholder Reports
Shareholders of record will be provided each year with a semi-annual report
showing portfolio investments and other information as of September 30 and,
after the close of the Funds' fiscal year March 31, with an annual report
containing audited financial statements. To eliminate unnecessary duplication,
only one copy of shareholder reports will be sent to shareholders with the same
mailing address. Shareholders who desire a duplicate copy of shareholder reports
to be mailed to their residence should call 1-800-595-9111.
Retirement Plans
Shares of the Funds may be purchased in connection with certain tax-sheltered
retirement plans, including profit-sharing plans, 401(k) plans, money purchase
pension plans, target benefit plans and individual retirement accounts. Further
information about how to participate in these plans, the fees charged and the
limits on contributions can be obtained from Northern Trust. To invest through
any of the tax-sheltered retirement plans, please call Northern Trust for
information and the required separate application. To determine whether the
benefits of a tax-sheltered retirement plan are available and/or appropriate, a
shareholder should consult with a tax adviser.
Miscellaneous
The address of Northern Funds is 207 E. Buffalo Street, Suite 400, Milwaukee,
Wisconsin 53202 and the telephone number is 1-800-595-9111. Northern Funds is
registered as an open-end management investment company under the 1940 Act, and
each of the Funds is classified under that Act as a diversified portfolio.
As used in this Prospectus, "Business Day" means each day Northern Trust and
the New York Stock Exchange are open, which is Monday through Friday, except for
holidays observed by Northern Trust and/or the Exchange. In 1996, these holidays
are New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Memorial Day,
Independence Day, Labor Day, Columbus Day, Veterans Day, Thanksgiving and
Christmas. On days when Northern Trust or the Exchange closes early as a result
of unusual weather or other conditions, the right is reserved to advance the
time by which purchase and redemption requests must be received. In addition, on
any Business Day when the Public Securities Association ("PSA") recommends
that the securities markets close early, the Funds reserve the right to cease or
to advance the deadline for accepting purchase and redemption orders for same
Business Day credit up to one hour before the PSA recommended closing time.
Purchase and redemption requests received after the advanced closing time will
be effected on the next Business Day. Northern Trust is not required to
calculate the net asset value of a Fund on days during which no shares are
tendered to a Fund for redemption and no orders to purchase or sell shares are
received by a Fund, or on days on which there is an insufficient degree of
trading in the Fund's portfolio securities for changes in the value of such
securities to materially affect the net asset value per share.
From time to time, Northern Funds' distributor may provide promotional
incentives to brokers whose representatives have sold or are expected to sell
shares of the Funds. At various times, the distributor may implement programs
under which a broker's sales force may be eligible to win cash or non-cash
awards for sales efforts, and may finance broker sales contests or recognition
programs conforming to criteria established by the distributor. The distributor
may also provide marketing services to brokers consisting of written
informational material relating to sales incentive campaigns conducted by such
brokers for their representatives.
Northern Trust is sometimes referred to as "The Northern Trust Bank" in
advertisements and other literature.
No person has been authorized to give any information or to make any
representations not contained in this Prospectus or in Northern Funds'
Additional Statement in connection with the offering made by this Prospectus
and, if given or made, such information or representations must not be relied
upon as having been authorized by Northern Funds or its distributor. This
Prospectus does not constitute an offering by Northern Funds or by the
distributor in any jurisdiction in which such offering may not lawfully be made.
PROSPECTUS
July 31, 1995
(Revised December 1, 1995)
Money
Market Fund
U.S. Government
Money
Market Fund
Municipal
Money
Market Fund
Northern Funds
P.O. Box 75986
Chicago, IL 60690-6319
